Scotiabank Weathers Growing Pains Overseas

Kraus, James R., American Banker

TORONTO -

Bucking a trend among Canadian banks, Bank of Nova Scotia is going global with a chain of outposts stretching from Argentina to the Philippines.

But after spending $700 million to acquire minority and majority stakes in banks across Latin America and tens of millions more on banks in Southeast Asia, earnings have been slow to materialize for the Halifaxbased company.

And because Scotiabank's expansion strategy is to take minority positions in foreign banks and subsequently increase its share, the process is inordinately slow.

Charles Coltman 3d, former vice chairman for international operations at First Union Corp., said such a strategy "is hard to manage because it takes time to build a common culture."

"On the other hand, it's less risky," Mr. Coltman said. "You get a chance to understand the other bank's culture and determine the extent to which they will accept what you bring to the table."

The company took a $50 million hit in Indonesia last year when it wrote off its equity stake in Djakarta-based PT Bank Ayra. And it set aside $67 million in provisions for souring emerging-market loans. The result: Its international earnings plunged 41%, to $178 million, in 1998.

Peter C. Godsoe, the bank's unassuming 61-year-old chairman and chief executive, said in a recent interview that he is looking at the long term. He predicted that Scotiabank's investments in emerging markets will pay off handsomely.

He acknowledged that Scotiabank's earnings to date from recent investments in Latin America and Asia "have not been sterling."

Yet $158 billion-asset Scotiabank sees huge opportunity in developingcountry markets, where interest margins often are more than 1,000 basis points - and where foreign-owned banks and branches often thrive even in periods of crisis, when local banks are in danger of failing and money seeks safe havens.

Mr. Godsoe predicted that within three years, return on equity from Scotiabank's international franchise will jump to 20%, from the current 10%, and that the bank will be earning $100 million to $150 million from its operations in emerging markets.

That may not seem like big bucks in the world of megabanking, but "it's still a significant amount for us," Mr. Godsoe said.

Ultimately, he wants to make Scotiabank's foreign business as big as its domestic one. To Mr. Godsoe, Canada is overbanked and underpopulated.

"We're a large Canadian bank in a small market, and the box is only so big," Mr. Godsoe said. "Canada is one of the most concentrated banking markets in the world, and that means we have to go abroad to grow."

The population of the Latin American countries in which Scotiabank operates is nearly 340 million, compared with barely 30 million in Canada, Mr. Godsoe noted.

And there is plenty of room for growth. Only 15% of the population in Latin America has bank accounts, compared with 80% in the Caribbean and 90% in Canada.

But Mr. Godsoe has a long way to go in achieving his foreign-business goals. Of $103 billion of loans issued by Scotiabank, less than 6% are in the Caribbean, 4% are in Asia, and slightly more than 3% are in Latin America. Close to 18% of its loans are to U.S. borrowers, and 6% to Europeans.

Scotiabank's modest current international exposure limits its risks. …

The rest of this article is only available to active members of Questia

Print this page

While we understand printed pages are helpful to our users, this limitation is necessary
to help protect our publishers' copyrighted material and prevent its unlawful distribution.
We are sorry for any inconvenience.